Why Bright Horizons Family Solutions Stock Swooned on Friday
Key Points
It beat on revenue but missed on earnings.
The company also cut its full-year guidance.
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Investors didn't care much for Bright Horizons Family Solutions (NYSE:BFAM) stock as the trading week came to an end. The child care services company posted a third quarter that featured guidance cuts, and its stock ended the day almost 18% lower.
Bright and not-so-bright spots
After the market close Thursday, Bright Horizons reported revenue of nearly $841.5 million for the quarter, up nearly 5% year over year. Net income not under generally accepted accounting principles (non-GAAP, or adjusted) fell to $87.5 million ($1.80 per share) from the year-ago profit of just over $90.1 million.
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Bright Horizons beat the average analyst estimate of $1.76 per share for adjusted profitability. It missed on the top line, though, as the consensus for revenue was nearly $842.7 million.
In its earnings release, the company attributed the top-line improvement to a 13% rise in back-up care services. This was mitigated to some extent by the closure of several of its full-service centers.
Chop, chop
None of this was overly worrying, but we can't say the same for Bright Horizons' guidance cuts. Management is now expecting full-year 2026 revenue to be around $3.07 billion, with adjusted net income of $4.98 to $5.03 per share. Previously, it provided a top-line range of almost $3.09 billion to just under $3.12 billion. Its adjusted earnings forecast was also higher then, at $5.05 to $5.15 per share.
In the company's earnings call, management attributed the chops to fallout from an ongoing regulatory safeguarding notice in the U.K., and a softening child care market in Australia that has triggered an internal review of strategic alternatives for that business.
The time frame for surmounting the company’s challenges varies; for example, the regulatory situation in Britain will take some time to resolve, as the main intake window for the current school year has closed. The stock was punished quite harshly for these developments. Still, while it looks cheap on valuation metrics, it needs to get the growth train running with its full-service centers and resolve the Australia situation to spark meaningful investor interest.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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